Inflation Bonds Are Sold With Negative Yield for First Time

Inflation-protected securities sold at negative yields for the first time ever on Monday as traders anticipate that the Federal Reserve will start a new round of asset purchases.

Analysts said that asset purchases by the Fed would lead to a higher inflation rate and a positive return on the bonds.

The $10 billion auction of the five-year bonds sold at a negative yield of 0.550 percent, according to the Treasury Department. The results of the auction of the securities, known as TIPS, came as indexes on Wall Street edged higher, buoyed by recent strong corporate earnings and a rise in housing sales. The previous lowest yield for the TIPS was in the auction on April 26, when the yield was 0.550 percent.

“It is saying that there is a true demand for inflation securities, because people perceive the quantitative easing program is enabling a higher inflation rate in the future,” said Tom di Galoma, head of fixed-income rates trading at Guggenheim Partners.

“Accounts are willing to pay up for inflation protection now,” he said, because they perceive a return of inflation in the future. Federal Reserve policy makers are expected to announce a new round of bonds purchases after their meeting on Nov. 2-3.

Mr. di Galoma said that TIPS have been moving toward negative yields because of the perception that inflation “will end up being quite robust in the future.”

As equities advanced, the dollar declined after promises by the world’s 20 biggest economies to avoid a currency war.

At the close, the Dow Jones industrial average was up 31.49 points, a gain of 0.28 percent, to 11,164.05. The Nasdaq rose 11.46 points, or 0.46 percent, to 2,490.85. The broader Standard & Poor’s 500-stock index rose 2.54 points, or 0.21 percent, to 1,185.62.

On Friday, the three indexes closed at weekly highs not seen since April, helped by earnings that have lifted shares despite uncertainty over an interest rate increase by the Chinese central bank.

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“We believe that strong earnings have been a major catalyst behind recent equity performance,” said Arne Espe, vice president for Mutual Fund Portfolios, at USAA Investment Management Company.

Brian Gendreau, the market strategist for the Financial Network, attributed some of the recent increases in the market to a strong third quarter results, as well as a generally better tone in business climate. “For many companies, both earnings and revenues have actually been coming in pretty strong,” Mr. Gendreau said.Shares on Wall Street followed European and Asian markets higher after finance officials at the meeting of developed and emerging countries agreed to avoid competitive currency devaluations. That touched on an issue between China and the United States in particular, as the Obama administration had sought to address a trade imbalance by pressuring China to revalue its currency.

Also on Monday, sales of existing houses showed an increase of 10 percent in September to a seasonally adjusted annual rate of 4.53 million units, above forecasts of 4.30 million, but they were still down 19 percent from the same month a year ago. The National Association of Realtors said about a third of the sales last were related to foreclosures.

Materials shares were up more than 2 percent or more in afternoon trading.

Before the markets opened in the United States, the Federal Reserve chairman, Ben S. Bernanke, reiterated that regulators were examining whether mortgage companies cut corners in the foreclosure process. State attorneys general are also investigating the procedures.

Financial shares, which have been struggling to overcome the fallout from the continuing foreclosure crisis, were marginally lower in the afternoon.

Mr. Gendreau also said that as the midterm Congressional elections get closer, the market could be firming on recent polls showing gains by Republicans. “The adage is that the market likes gridlock,” he said. “It certainly seems to be the prospect of compromise, a more even distribution of power.”

Bond prices rose, with the yield on the 10-year Treasury down to 2.53 percent from 2.56 percent late Friday.